Author information:
György Molnár: Magyar Nemzeti Bank, Analyst at the time of writing the study. E-mail: gyorgy.molnar@ogresearch.com
Gábor Dániel Soós: Magyar Nemzeti Bank, Senior Economic Analyst. E-mail: soosg@mnb.hu
Balázs Világi: Magyar Nemzeti Bank, Head of Department. E-mail: vilagib@mnb.hu
Abstract:
After the 2007–2008 financial crisis and the subsequent prolonged, deep recession, the question of whether fiscal policy can be applied to stimulate the economy came into focus, as conventional tools of monetary policy became ineffective. Accordingly, the related research also received a new boost. The purpose of our paper is to present the new research results, which mainly focus on whether fiscal policy can be applied to influence business cycles. Although there is still much debate, the claim that the effects of fiscal policy are not constant, but rather depend on the state of the business cycle, has been supported by numerous theoretical models and empirical results: in prolonged, deep recessions, and especially in the case of a liquidity trap, the multiplier of government expenditures is high, while in the case of booms it is relatively low.
Cite as (APA):
Molnár, G., Soós, G. D., & Világi, B. (2017). Fiscal Policy and the Business Cycle. Financial and Economic Review, 16(4), 58–85. https://doi.org/10.25201/FER.16.4.5885
Column:
Study
Journal of Economic Literature (JEL) codes:
E62, E52, E21, E12
Keywords:
fiscal policy, expenditure multiplier, business cycles, liquidity trap, debt-constrained households
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